By SIMON CONSTABLE
Do Chinese money managers have what it takes to do the job?
If you count the ability to pick stocks and generate good returns for clients, then unfortunately most don’t, according to a forthcoming study obtained by MarketWatch.
What’s really needed to outperform for clients is either an MBA degree or a Chartered Financial Analyst (CFA) designation, says the report by Prof. Yi Fang of Jilin University, China and Prof. Haiping Wang of York University, Canada.
The problem is that only one in five of China’s fund managers have either one or both of those credentials, the two professors find.
The article detailing the study, titled “Fund Manager Characteristics and Performance,” is scheduled to be published in the Investment Analysts Journal in early 2015. The two researchers looked at the performance of 157 managers between January 2008 and June 2011 operating in the Chinese domestic market.
With that data they analyzed the correlations between performance and 11 different manager characteristics. Most notably they found that stock picking and timing skills were 86% correlated with excess returns (i.e., those returns commensurate with the risks involved).
In turn, those abilities (stock picking and timing) were closely linked to the possession of an MBA or CFA.
“Having an MBA or CFA is the most important quality of fund managers in China to outperform his/her peers,” says the report. Those that do “may be good candidates for investors because [… it] results in higher returns and better comprehensive performance.”
But here’s the rub. Only 12.3% of Chinese fund managers in the sample had a CFA designation (versus about half of U.S. fund managers, the authors say) and just 9.4% possessed an MBA. The proportion of those with one, or both, of the designations was 20.1% of the group.
These findings contrast with a more common view when it comes to careers in China that it’s not what you know, but who you know.
“When you talk to local investment banks it is all about relationships; financial skills are secondary,” says Patrick Chovanec, chief strategist with Silvercrest Asset Management in New York and previously a professor at Tsinghua University in Beijing.
In the same vein, Gordon Chang, author of “The Coming Collapse of China,” and an expert on the country for more than two decades, says: “People aren’t so much focused on picking the right stock as they are on trying to figure out what the government is going to do.” Traditionally, he adds, that’s been the path to investment success.
See original story here.